Build a Special Finance Operation Ground Up: Pt 6

The DealerStrong Team Chronicles the Steps to Building a New Special Finance Operation

Sixth in a series of six articles. While the names and locations are being changed to protect the company’s privacy, this is the sixth of six articles that document the process being used to develop a startup Special Finance Operation inside an already successful independent dealer, located on the fringe of one of the major metro markets in the United States. It will detail the plan, the strategies, the successes and the challenges encountered over a six-month period, with the end goal of the new department to reach a monthly sales volume of 70 deals at over $230,000 total gross by the end of that period.

Finished the 5th Month & Sprinting for the Finish

December in the Special Finance industry is never for the meek. The lack of required down payment, as consumers are using their available cash for Christmas presents, makes putting Special Finance deals together significantly more difficult. Nonetheless, you can’t take the month off, so DealerStrong and the Red Team at Champion Motors made plans to have a strong and profitable month.

Some of the obstacles encountered in the fourth month of our special finance operation rolled forward to month five, however, the team had plans established to work around them in the short term and evolved past as the month moved forward. At months end, the sales volume (although not what we aimed for) was still very strong and very profitable and we were well positioned for the final push.

The Highs

Our Red Team desk manager had come into his own. Personally, I had some reservations when he was invited to join the team at the onset of the project, however, he more than erased those doubts. He continued to work deals cleanly and profitably while allowing for a high closing rate and customer satisfaction. He absolutely has kept the store’s best interests in mind and has been a very pleasant surprise. It will be our recommendation once our six-month project is completed that he becomes the desk manager for the entire store.

Our closing ratio of customers visiting the store improved – in a tough month to do so. We hit 34%, well above the benchmark of 28.6%, tallying 47 Red Team deals (highest yet, but short of our goal of 50) out of 138 store visits.

We added Credit Acceptance as an additional finance company and they helped create some deals in Tiers 3, 4 and Zero Score, as did Pelican Auto Finance and Exeter.

We successfully moved a non-motivated BDR employee out and onto the Red Team sales team. It was a win-win as they sold 8.5 units on the sales floor, effectively doing it in less than three weeks after going through training, and, we replaced them with a strong performer in the BDC.

The Nation’s Premier Auto Dealer Program really hit its stride. On the same spend it brought in 445 identifiable and unique phone prospects and the BDC, even not in full stride, brought 80 into the showroom. It was easily the largest source of business.

Focus Inc., the supplier of shared leads (between four dealerships) generated from TV infomercials, finally hit their stride. For the first four months the leads had proven to overmatch the rookie BDC team members. While the percentage of leads that actually made it to the showroom was small, the Red Team delivered 50% of those that did. Additionally, it wasn’t until the end of the month the team demonstrated their proficiency. We expect more success in January on those leads.

InterActive Financial Marketing Group, after a tough perplexing start in prior months, stood true to their word and delivered very good leads. While the quantity was relatively low, the quality was very high and not only was the BDC excited to work them, they resulted in four very cost effective sales.

The surprising development of sales of near luxury and luxury vehicles to Special Finance customers continued. A surprising number of BMWs, Lexuses, Mercedes and Volvos have been delivered, many of them at very good gross profits. While they are certainly older and have a bit higher mileage, the customers are willing to come up with the needed down payment when they are buying something they can get excited about driving. Payment-to-income ratios are the key!

The best news is through our first four months, after all Special Finance Operation related expenses including personnel, advertising, credit bureaus, etc., the dealership, after its break-even first month, has generated an additional $233,760 in net profits!

The Lows

December hit. While the weather had been mild, the area was bombed with a 12-inch snowfall on a Friday night early in the month, essentially eliminating Saturday, our biggest day of the week. With just four Saturdays in December, losing 25% of them made for a challenge. Weather is just something dealers have to contend with, but it really was a disappointment to have it wipe out a weekend.

The website. It is a broken record and a dismal failure. More aggravating is that as I login to the backend dashboards of other clients using them, I see that Champion is the only dealership not having terrific results. Repeated phone calls and emails have generated nothing, and the dealership has just managed to eke to page number two on Google, even when searching using their specific name, which is their city coupled with the words “auto” and “loans” .com. We finished the month with a large broadcast budget, even with 600 fewer website leads than we had originally forecast. At this rate we don’t expect it to improve in January.

The BDC still does not have a BDC manager, but is at least improving. While the 37% appointment show rate didn’t show any improvement, there were a few mitigating circumstances. First, we did get a quality replacement hired and morale, which had floundered unbeknownst to us in the last week of November, soared. Second, in the last half of the month the show rate jumped to 45%, indicating good progress. Finally, they easily put the highest number of showroom visitors in the store ever, and it was in December.

Other personnel issues arose. The top Red Team sales person, averaging nearly 20 units per month, was arrested away from the dealership for non-driving issues. He was instantly terminated, leaving an obvious hole in the sales team. While it was relatively quickly filled, it nonetheless created a void while we were getting the new hire up to speed.

Another “broken record” occurred on the inventory front. While the owners and buyers have demonstrated they can buy what they need, they simply aren’t doing it to the proper quantity, all the while overbuying for their Green Team – which is creating a massive inventory glut. It looks to be doubtful that this issue will change in time for it to make a significant impact in January.

Additionally, the bottleneck in the service department, where they were one service advisor short at the desk, still exists. They identified a solid person and thought they had them hired. Ultimately it did not pan out. Dispatching and parts sourcing are still slowing the reconditioning process immensely.

The Bottom Line

In spite of it being December, being bombed by weather, and experiencing the usual challenges of any dealership, the Red Team rocked it for 47 units, just three shy of the goal, and brought our Special Finance Operation net profit up to over $233,000. With the BDC coming into line, we keep our fingers crossed with the January weather and eagerly look forward to our sprint to the finish!

Greg Goebel is the President and CEO of DealerStrong, author of The Complete Guide to Special Finance, and previous CEO of Auto Dealer Monthly magazine. Greg has extensive experience in the subprime sector. His dealerships first began utilizing Special Finance in 1990 and delivered over 11,000 subprime deals.